Atl. Ins. Co. v. Blue Cross & Blue Shield of Kan.

664 F.Supp.3d 1246

ATLANTIC SPECIALTY INSURANCE COMPANY, Plaintiff/Counter-Defendant, v. BLUE CROSS AND BLUE SHIELD OF KANSAS, INC., Defendant/Counter-Plaintiff, v. Allied World Surplus Lines Insurance Company f/k/a Darwin Select Insurance Company and Blue Cross Blue Shield Association, Defendants.

Allied World Specialty Insurance Company, f/k/a Darwin Select Insurance Company, Plaintiff/Counter-Defendant, v. Blue Cross and Blue Shield of Kansas, Inc., Defendant/Counter-Plaintiff.

Case No. 18-2371-DDC-ADM

Case No. 18-2515-DDC-ADM

United States District Court, D. Kansas

Signed March 27, 2023

Christopher M. Harper, John LaVelle Mullen, Franke Schultz & Mullen, PC, Kansas City, MO, Heidi Hudson Raschke, Pro Hac Vice, Carlton Fields Jordon Burt, P.A., Tampa, FL, Steven J. Brodie, Pro Hac Vice, Carlton Fields, P.A., Miami, FL, for Plaintiff/Counter-Defendant in No. 18-2515.

Barry L. Pickens, Spencer Fane LLP, Overland Park, KS, Caitlin O. Young, Pro Hac Vice, Dan J. Hofmeister, Jr., Pro Hac Vice, Kevin D. Tessier, Pro Hac Vice, Reed Smith, LLP, Chicago, IL, Douglas M. Weems, Spencer Fane LLP, Kansas City, MO, for Defendant/Counter-Plaintiff in No. 18-2515.

MEMORANDUM AND ORDER

Daniel D. Crabtree, United States District Judge

This case arises from an insurance coverage dispute. Plaintiff Allied World Specialty Insurance Company ("Allied World") filed this declaratory judgment action against defendant Blue Cross and Blue Shield of Kansas, Inc. ("BCBSKS"), seeking a declaratory judgment that the Directors and Officers Liability Policy ("D&O Policy") that it issued to BCBSKS doesn't provide insurance coverage for any claims, losses, or other damages asserted by claimants in an underlying Multi-District Litigation ("MDL Action") in the Northern District of Alabama. In response, BCBSKS filed a Counterclaim against Allied World seeking its own declaratory judgment that the D&O Policy obligates Allied World to pay BCBSKS's defense costs incurred in the MDL Action. BCBSKS also asserts counterclaims against Allied World for breach of contract and breach of the duty of good faith and fair dealing.

This matter comes before the court on BCBSKS's Motion for Judgment on the Pleadings (Doc. 202). Allied World has filed a Response in Opposition to the Motion for Judgment on the Pleadings and a Cross Motion for Judgment on the Pleadings (Docs. 217 & 218). BCBSKS has filed a Reply in Support of its Motion for Judgment on the Pleadings and an Opposition to Allied World's Cross Motion for Judgment on the Pleadings (Doc. 223). And, Allied has filed a Reply in Support of its Cross Motion for Judgment on the Pleadings (Doc. 228). Also, BCBSKS has filed a Notice of Supplemental Authority (Doc. 232), to which Allied World has responded (Doc. 234). After considering all of the parties' filings, the court denies BCBSKS's Motion for Judgment on the Pleadings (Doc. 202) and grants Allied World's Cross Motion for Judgment on the Pleadings (Doc. 218). It explains why, below.

I. Factual and Procedural Background

The court takes the following facts from Allied World's "Complaint for Declaratory Judgment" and BCBSKS's "Answer to Plaintiffs' Complaint for Declaratory Judgment, Affirmative Defenses and Counterclaims" and the supporting documents attached to these two pleadings. Complaint for Declaratory Judgment, Allied World Specialty Ins. Co. v. Blue Cross & Blue Shield of Kan., Inc., No. 18-2515-DDC-ADM (D. Kan. Sept. 25, 2018), ECF No. 1 ("Complaint"); Defendant's Answer to Plaintiffs' Complaint for Declaratory Judgment, Affirmative Defenses and Counterclaims, Allied World Specialty Ins. Co. v. Blue Cross & Blue Shield of Kan., Inc., No. 18-2515-DDC-ADM (D. Kan. Nov. 26, 2018), ECF No. 16 ("Counterclaim").² The court views these facts in the light most favorable to the non-moving party. Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir. 2000) (explaining that on a motion for judgment on the pleadings under Rule 12(c) the court "accept[s] the well-pleaded allegations of the complaint as true and construe[s] them in the light most favorable to the non-moving party" (citations and internal quotation marks omitted)); see also Cessna Fin. Corp. v. JetSuite, Inc., 437 F. Supp. 3d 914, 919 (D. Kan. 2020) (explaining that courts may consider documents attached to the pleadings when deciding a Rule 12(c) motion for judgment on the pleadings).

D&O Policy

Allied World issued to BCBSKS a Healthcare Organizations Directors and Officers Liability Policy ("D&O Policy"). Doc. 1-7. The D&O Policy is for the period of July 1, 2012 to October 1, 2013. Id. at 25 (D&O Policy Endorsement No. 19). The D&O Policy requires Allied World to pay on BCBSKS's behalf "the Loss arising from a Claim, first made during the Policy Period ... against the Insureds for Antitrust Activities[.]" Id. at 27 (D&O Policy § I.D.). The D&O Policy defines "Loss" to include "Defense Costs." Id. at 34-35 (D&O Policy § II.R.9.). And the D&O Policy defines "Defense Costs" as "reasonable and necessary fees, costs, charges or expenses incurred by or on behalf of an Insured in the investigation, defense or appeal of a Claim[.]" Id. at 32 (D&O Policy § II.H.1.). But, under the D&O Policy, the "Insurer does not assume any duty to defend any Claim[.]" Id. at 42 (D&O Policy § VI.A.). Instead, the D&O Policy requires "the Insurer" to "reimburse Defense Costs in excess of the Retention prior to the final disposition of any Claim, subject to all other terms and conditions of this Policy." Id. (D&O Policy § VI.E.).

The D&O Policy contains a Managed Care Activities Exclusion. Id. at 41 (D&O Policy § III.N.). The Managed Care Activities Exclusion excludes coverage for Loss in connection with any Claim:

alleging, arising out of, based upon, or attributable to, any actual or alleged act, error or omission in the performance of, or failure to perform, Managed Care Activities by any Insured or by any individual or entity for whose acts, errors or omissions an Insured is legally responsible, except that this Exclusion shall not apply to that portion of an otherwise covered Claim for Provider Selection Practices[.]

Id. The D&O Policy defines "Managed Care Activities" as:

Utilization Review; advertising, marketing, selling, or enrollment for health care or workers' compensation plans; ... establishing health care provider networks; ... and services or activities performed in the administration or management of health care, consumer directed health care, behavioral health, prescription drug, dental, vision, long or short term disability, life, automobile medical payment, or workers' compensation plans[.]

Id. at 16 (D&O Policy Endorsement No. 10).

The D&O Policy also excludes:

[A]ny Loss in connection with any Claim ... alleging, arising out of, based upon or attributable to, as of the Pending or Prior Date set forth in Item 6. of the Declarations with respect to this Policy, any pending or prior: (1) litigation; or (2) administrative or regulatory proceeding or investigation, of which an Insured had notice, including any Claim alleging or derived from the same or essentially the same facts, or the same or related Wrongful Acts, as alleged in such pending or prior litigation or administrative or regulatory proceeding or investigation[.]

Id. at 38-39 (D&O Policy § III.D.).

Also, the D&O Policy provides, all "Related Claims shall be deemed to be a single Claim made on the date on which the earliest Claim within such Related Claims was first made...." Id. at 44 (D&O Policy § VII.D.). The D&O Policy defines "Related Claims" as "all Claims for Wrongful Acts based upon, arising out of, directly or indirectly resulting from, or in consequence of, the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situations, transactions or events." Id. at 37 (D&O Policy § II.CC.).

The E&O Policy

Allied World also issued to BCBSKS a Managed Care Organizations Errors and Omissions Liability Policy ("E&O Policy") for the same period, July 1, 2012 to October 1, 2013. Doc. 1-6 at 45 (E&O Policy Endorsement No. 39). The E&O Policy requires Allied World to pay on BCBSKS's behalf "Loss which the Insured is legally obligated to pay as a result of a Claim that is first made against the Insured during the Policy Period[.]" Id. at 51 (E&O Policy § I.). The E&O Policy's definition of "Loss" includes "Defense Expenses." Id. at 61 (E&O Policy § IV.J.). And the D&O Policy defines "Defense Expenses" as "reasonable legal fees and expenses incurred in the investigation, adjustment, defense or appeal of a Claim[.]" Id. at 60 (E&O Policy § IV.E.).

The E&O Policy defines "Claim," in relevant part, as "any written notice received by any Insured that a person or entity intends to hold an Insured responsible for a Wrongful Act[.]" Id. (E&O Policy § IV.C.). The E&O Policy defines "Wrongful Act" in relevant part as "any actual or alleged act, error or omission in the performance of, or any failure to perform, a Managed Care Activity by any Insured Entity or by any Insured Person acting with the scope of his or her duties or capacity as such[.]" Id. at 62 (E&O Policy § IV.W.1.). And the E&O Policy defines "Managed Care Activity" to include:

Provider Selection; Utilization Review; advertising, marketing, selling, or enrollment for health care or workers' compensation plans; ... establishing health care provider networks; ... and services or activities performed in the administration or management of health care or workers' compensation plans.

Id. at 61 (E&O Policy § IV.K.).

The MDL Action

In 2012, various healthcare providers and health insurance subscribers filed several class action lawsuits alleging antitrust violations by certain Blue Cross Blue Shield Plans ("Blue Plans") and the Blue Cross Blue Shield Association ("BCBSA"). Doc. 1 at 2 (Compl. ¶ 7). Generally, the lawsuits allege that the Blue Plans and BCBSA "conspired to leverage their economic...